The Federal Trade Commission - FTC Reform

May 22, 2016 - Quoted in Geoffrey Manne, FTC Commissioner Joshua Wright gets his ...... that there are differences between marketing language and lan-.
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The Federal Trade Commission: Restoring Congressional Oversight of the Second National Legislature AN ANALYSIS OF PROPOSED LEGISLATION by Berin Szóka & Geoffrey A. Manne May 2016 Report 2.0 FTC: Technology & Reform Project 1

The Federal Trade Commission: Restoring Congressional Oversight of the Second National Legislature AN ANALYSIS OF PROPOSED LEGISLATION Berin Szókai & Geoffrey A. Manneii May 2016 Report 2.0 of the FTC: Technology & Reform Project The “FTC: Technology & Reform Project” was convened by the International Center for Law & Economics and TechFreedom in 2013. It is not affiliated in any way with the FTC.

Executive Summary Congressional reauthorization of the FTC is long overdue. It has been twenty-two years since Congress last gave the FTC a significant course-correction and even that one, codifying the heart of the FTC’s 1980 Unfairness Policy Statement, has not had the effect Congress expected. Indeed, neither that policy statement nor the 1983 Deception Policy Statement, nor the 2015 Unfair Methods of Competition Enforcement Policy Statement, will, on their own, ensure that the FTC strikes the right balance between over- and underenforcement of its uniquely broad mandate under Section 5 of the FTC Act. These statements are not without value, and we support codifying the other key provisions of the Unfairness Policy Statement that were not codified in 1980, as well as codifying the Deception Policy Statement. In particular, we urge Congress or the FTC to clarify the i

Berin Szóka is President of TechFreedom (techfreedom.org), a non-profit, tax-exempt think tank based in Washington D.C. He can be reached at [email protected] or @BerinSzoka. ii

Geoffrey Manne is Executive Director of the International Center for Law & Economics (laweconcenter.org), a non-profit think tank based in Portland, Oregon. He can be reached at [email protected] or @GeoffManne.

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meaning of “materiality,” the key element of Deception, which the Commission has effectively nullified. But a shoring up of substantive standards does not address the core problem: ultimately, that the FTC’s processes have enabled it to operate with essentially unbounded discretion in developing the doctrine by which its three high level standards are applied in real-world cases. Chiefly, the FTC has been able to circumvent judicial review through what it calls its “common law of consent decrees,” and to effectively circumvent the rulemaking safeguards imposed by Congress in 1980 through a variety of forms of “soft law”: guidance and recommendations that have, if indirectly and through amorphous forms of pressure, essentially regulatory effect. At the same time, and contributing to the problem, the FTC has made insufficient use of its Bureau of Economics, which ought to be the agency’s crown jewel: a dedicated, internal think tank of talented economists who can help steer the FTC’s enforcement and policymaking functions. While BE has been well integrated into the Commission’s antitrust decisionmaking, it has long resisted applying the lessons of law and economics to its consumer protection work. The FTC is, in short, in need of a recalibration. In this paper we evaluate nine of the seventeen FTC reform bills proposed by members of the Commerce, Manufacturing and Trade Subcommittee, and suggest a number of our own, additional reforms for the agency. Many of what we see as the most needed reforms go to the lack of economic analysis. Thus we offer detailed suggestions for how to operationalize a greater commitment to economic rigor in the agency’s decision-making at all stages. Specifically, we propose expanding the proposed requirement for economic analysis of recommendations for “legislation or regulatory action” to include best practices (such as the FTC commonly recommends in reports), complaints and consent decrees. We also propose (and support bills proposing) other mechanisms aimed at injecting more rigor into the Commission’s decisionmaking, particularly by limiti